Are You Ready for the New China? - Pharmaceutical Executive

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Are You Ready for the New China?


Pharmaceutical Executive


Is the Past a Prologue?

Unfortunately, the record on support for private healthcare is a checkered one. As China began to loosen healthcare restrictions at the beginning of the past decade, a decision was made to allow the sale of selected hospitals to private investors. Health authorities hoped this would allow local health bureaus to offload underperforming facilities and provide an opportunity for state-owned enterprises (SOEs) to divest non-core assets while at the same time seeding a private medical system that would alleviate strain on crowded public hospitals. Over the next several years, significant numbers of mid-size/county hospitals and SOE hospitals were privatized. In some cases, facilities were granted to the staff, with all employees receiving shares, but in many instances, hospitals were sold to real-estate developers with no prior experience in healthcare. Many hospitals, once privatized, placed significant emphasis on short-term profits, often at the expense of service quality (and, in some cases, medical ethics). Sales of medicines were a key source of those profits and there was a built-in incentive to overprescribe and charge high premiums to patients.

Despite these handicaps, private healthcare might still have succeeded if private hospitals had been allowed access to one key medical asset: talented doctors. In China, physicians are licensed to practice at a single facility, (actually inscribed on the medical license itself). According to MOH regulations, doctors choosing to practice at private hospitals had to forfeit affiliation with their government facility—thus exiting the path for promotion through physician ranks as well as ending the process of academic advancement. Top-ranked physicians such as department chairs and recognized experts, already comfortable with their position (and already earning incomes well in excess of government levels, one "red envelope" at a time), were understandably reluctant to leave their posts. Moreover, physicians in the middle of their careers and even talented younger practitioners—the rising stars—were similarly disinclined to enter private practice and render stagnant their careers.

With few exceptions, China's first attempt at private healthcare can be seen as a complete failure—a system comprised of poorly managed facilities staffed by medical personnel whom the vast majority of patients had no interest in patronizing. By taking a portion of public hospitals "offline" and creating private hospitals which Chinese medical consumers actively shunned, a plan to create a private sector of medical facilities to ease demand on public resources had in fact resulted in just the opposite: more patients now crowded into even fewer facilities. Burdened with poor management and staffed by physicians with no reputation, private healthcare in China quickly earned a dismal reputation among medical consumers—one that it has yet to successfully shrug off. High drug prices also tainted the public's association with private healthcare and reflected poorly on the industry image.

A New Hope

China's healthcare reforms, drafted over the course of the past two years and now entering a phase of national and regional implementation, are fundamentally changing the structure of medicine and its delivery across many levels. Many have speculated about the role of private healthcare, including foreign-invested private healthcare, under this new medical system. Although the original language of the healthcare reforms does mention private healthcare (and commercial insurance), it is only within the past several months that regulators have begun to more fully articulate their position on private medical facilities. At this juncture, there are strong signs that the government is preparing for a relaunch of private healthcare—and that this time, they intend to get it right.

A major step forward for private healthcare has been the recent release of "Opinions on further lifting restrictions to private hospitals," co-authored by the National Development and Reform Commission (NDRC), Ministry of Health (MOH), Ministry of Finance (MOF), Ministry of Commerce (MOC), and Ministry of Human Resources and Social Security (MHRSS). The opinion offers a number of regulatory enticements to encourage private investment in healthcare facilities—including the opportunity to participate in basic medical insurance reimbursement systems and favorable tax policies. Significantly, the opinion also paves the way for 100 percent foreign-owned healthcare facilities, although no timetable for this process is given.

An additional sign that bodes well for private healthcare is that the State Council, China's supreme executive body, has been supportive of these initiatives. In early December 2010, the council issued a circular asking government at all levels to simplify procedures to facilitate private and foreign investment in the healthcare sector. Recent indications in some locations (such as Shanghai) suggest that VIP units will be chased out of top academic hospitals, which further reinforces the likelihood of a separate private system taking shape.


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